Precision Tsugami (China) (HKG:1651) Is Increasing Its Dividend To CN¥0.50

The board of Precision Tsugami (China) Corporation Limited (HKG:1651) has announced that it will be paying its dividend of CN¥0.50 on the 12th of September, an increased payment from last year's comparable dividend. This will take the dividend yield to an attractive 3.6%, providing a nice boost to shareholder returns.

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Precision Tsugami (China)'s Future Dividend Projections Appear Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last dividend, Precision Tsugami (China) is earning enough to cover the payment, but then it makes up 111% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Looking forward, earnings per share is forecast to rise by 116.1% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 25% by next year, which is in a pretty sustainable range.

See our latest analysis for Precision Tsugami (China)

Precision Tsugami (China) Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 7 years of history we want to see a few more years of history before making any solid conclusions. The annual payment during the last 7 years was CN¥0.138 in 2018, and the most recent fiscal year payment was CN¥0.911. This means that it has been growing its distributions at 31% per annum over that time. Precision Tsugami (China) has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. Precision Tsugami (China) has seen EPS rising for the last five years, at 39% per annum. Precision Tsugami (China) is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

Our Thoughts On Precision Tsugami (China)'s Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Precision Tsugami (China) has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.